1933 Act File No. 33-31072
1940 Act File No. 811-5876
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 16 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT |X|
OF 1940
Amendment No. 16 |X|
LORD ABBETT SERIES FUND
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Exact Name of Registrant as Specified in Charter
767 FIFTH AVENUE, NEW YORK, N. Y. 10153-0203
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Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
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Thomas F. Konop, Vice President
767 FIFTH AVENUE, NEW YORK, N. Y. 10153
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Name and Address of Agent for Service
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|X| 60 days after filing pursuant to paragraph (a) (1)
|_| on (date) pursuant to paragraph (a) (1)
|_| 75 days after filing pursuant to paragraph (a) (2)
|_| on (date) pursuant to paragraph (a) (2) of rule 485
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
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Prospectus | May 1, 1999
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Lord Abbett
Series Fund
FPO
[LOGO](R) LORD ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
As with all mutual funds, the Securities and Exchange
Commission does not guaranee that the information in this
prospectus is accurate or complete, and it has not judged this
fund for investment merit. It is a criminal offense to state
otherwise.
<PAGE>
Table of Contents
Page
The Fund
What you should know Goal/Approach 2
about the fund Main Risks 2
Past Performance 3
Fees and Expenses 3
Your Investment
Information for managing Purchases and Redemptions 4
your fund account Tax Status 4
Sales Charges and Service Fees 4
Management 5
For More Information
How to learn more Other Investment Techniques 6
about the fund Glossary of Shaded Terms 7
Recent Performance 8
Financial Information
How to learn more about Back Cover
the fund and other
Lord Abbett funds
<PAGE>
The Fund
GOAL/APPROACH
The fund seeks long-term growth of capital and income without excessive
fluctuations in market value. Typically, in choosing stocks, we look for
companies using a three-step process.
o Quantitative research is performed on a universe of large, seasoned
U.S. and multinational companies to identify those whose stocks we
think represent the best bargains.
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its
prospects for exceeding the earnings expectations reflected in its
stock price.
o Business cycle analysis is used to assess the economic interest-rate
sensitivity of our portfolio. This analysis helps us assess how
adding or deleting stocks changes our portfolio's overall
sensitivity to economic activity and interest rates.
We believe that investors purchase and redeem our shares to meet long-term
financial objectives rather than to try to take advantage of short-term
price fluctuations. If so, their needs may be best served by investment
seeking capital appreciation with less fluctuations in market value than
the Standard & Poor's Composite Index of 500 Stocks ("S&P 500(R)"). For
this reason, we try to keep our assets invested in securities that are
selling at reasonable prices. Also, we are willing to forego some
opportunities for gains when we believe they are too risky.
We typically sell a stock when we think it is no longer a bargain, appears
less likely to benefit from the current market and economic environment,
shows deteriorating fundamentals or fall short of our expectations.
While typically fully invested, we may take a temporary defensive position
in cash and short-term debt securities. This could prevent the fund from
realizing its investment objective.
MAIN RISKS
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in the
fund will go up and down, which means that you could lose money.
Our performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing small-company stocks or growth
stocks). Different types of stocks tend to shift in out of favor depending
on market and economic conditions. While there is the risk that an
investment may never reach what we think is its full value, or may go down
in value, our emphasis on large, seasoned company bargain stocks might
limit our downside risk because bargain stocks in theory are already
underpriced. In addition, large, seasoned company stocks tend to be less
volatile than small-company stocks. In the long run, we may produce more
modest gains than riskier stock funds as a trade-off for this potentially
lower risk.
The fund is a diversified fund. With regard to 75% of its total assets, it
will not purchase a security if, as a result, more than 5% of the fund's
total assets would be invested in securities of a single issuer or the
fund would hold more than 10% of the outstanding voting securities of the
issuer. In addition, because the fund serves as the underlying investment
for variable contracts issued by life insurance companies, it is subject
to certain additional diversification requirements imposed by the Internal
Revenue Code.
We or the fund refers to the Growth and Income Portfolio, a portfolio of the
Lord Abbett Series Fund (the "company"). The fund operates under the supervision
of its Board, with the advice of Lord, Abbett & Co. ("Lord Abbett"), its
investment manager
About each fund. The fund is a professionally managed portfolio of securities
purchased with the pooled money of investors. It strives to reach its stated
goal, although as with all funds, it cannot guarantee results.
Bargain stocks are stocks of companies that appear under-priced according to
certain financial measurements of their intrinsic worth or business prospects.
Growth Stocks exhibit faster-than-average gains in earnings and are expected to
continue profit growth at a high level, but also tend to be more volatile than
bargain stocks.
Large companies are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
Seasoned companies are usually established companies whose securities have
gained a reputation for quality with the investing public and enjoy liquidity in
the market.
Small-company stocks are stocks of smaller companies which often are new and
less established, with a tendency to be faster-growing but more volatile than
large company stocks.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely des-cribes the other investment strategies, and their risks,
used by the fund.
2 The Fund
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Growth & Income Portfolio Symbol: Class VC
PAST PERFORMANCE
The information below provides some indication of the risks of investing
in the fund, showing changes in the fund's performance from calendar year
to calendar year and by showing how the fund's average annual returns
compare with those of a broad measure of market performance.
Awaiting Data
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The table below shows a comparison of the fund's class VC average annual
total return to that of the S&P 500(R) Index. Fund returns assume
reinvestment of dividends and distributions and payment of the maximum
applicable front-end or deferred sales charge. All periods end on December
31, 1998.
Class 1 Year 5 Years 10 Years Inception(i)
VC 0.00% 0.00% 0.00% 0.00%
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S&P 500(R)Index(ii) 0.00% 0.00% 0.00% 0.00%
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FEES AND EXPENSES
Lord Abbett may waive its management fee and/or advance other expenses of
the fund. Although each class must bear the expenses solely attributable
to it, the classes are expected to experience cost savings over the
aggregate amount that would be payable if each class were a separate fund
because they have the same Directors, accountants, attorneys and share
other general and administrative expenses. Any expenses which are not
solely attributable to a specific class are allocated on the basis of the
net assets of the respective classes. For the year ended December 31,
1998, the expenses borne by the portfolio amounted to $___________ or
________ of 1% of its average daily net assets.
Past performance is not a prediction of future results.
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(i) The date of inception for class VC is: 12/11/94.
(ii) Performance for the unmanaged S&P 500(R) Index does not reflect
transaction costs or management fees.
Management fees are payable to Lord Abbett for the fund's investment management.
12b-1 fees refer to fees incurred for activities that are primarily intended to
result in the sale of fund shares and service fees for shareholder account
service and maintenance.
Other expenses include fees paid for miscellaneous items such as transfer
agency, legal and share registration fees.
The Fund 3
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Your Investmen
PURCHASES AND REDEMPTIONS
This prospectus offers one class of shares, class VC. Shares are currently
only sold to the separate accounts of the Life Companies at net asset
value ("NAV"). Redemptions will be effected by the separate accounts to
meet obligations under the Variable Contracts. Contract owners do not deal
directly with the fund with respect to acquisition or redemption of
shares. In selecting broker/dealers to execute portfolio transactions for
the fund's portfolio, if two or more broker/dealers are considered capable
of best execution, the fund may prefer the broker/dealer who has sold fund
shares through the sale of such Variable Contracts.
TAX STATUS
It is the intention of the fund to have the portfolio qualify, and for the
fiscal year ended December 31, 1998, it did qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. The
fund distributes all of its net income and gains to its shareholders
(including the separate accounts). The portfolio is treated as a separate
entity for federal income tax purposes and, therefore, the investments and
results of the portfolio are determined separately for purposes of
determining whether the portfolio qualifies as a "regulated investment
company" and for purposes of determining net ordinary income (or loss) and
net realized capital gains (or losses).
SALES CHARGES AND SERVICE FEES
Sales and Service Compensation. As part of its plan for distributing
shares, each fund and Lord Abbett Distributor pay sales and service
compensation to Authorized Institutions that sell the fund's shares and
service its shareholder accounts. The fund's plan has not been activated
to date.
Sales compensation originates from two sources: sales charges and 12b-1
distribution fees that are paid out of each fund's assets. Service
compensation originates from 12b-1 service fees. The 12b-1 fee rates vary
by share class, according to the Rule 12b-1 plan adopted by each fund.
Sometimes we do not pay sales and service compensation where tracking data
is not available for certain accounts or where the Authorized Institution
waives part of the compensation.
We may pay Additional Concessions to Authorized Institutions from time to
time.
We may pay Additional Concessions to Authorized Institutions from time to
time. Sales Activities. We may use 12b-1 distribution fees to pay
Authorized Institutions to finance any activity which is primarily
intended to result in the sale of shares. These activities include, but
are not limited to, printing of prospectuses and statements of additional
information and reports for other than existing shareholders, preparation
and distribution of advertising and sales material, expenses of organizing
and conducting sales seminars, Additional Concessions to Authorized
Institutions, the cost necessary to provide distribution-related services
or personnel, travel, office expenses, equipment and other allocable
overhead.
NAV per share for each class of fund shares is calculated each business day at
the close of regular trading on the New York Stock Exchange ("NYSE"). The fund
is open on those business days when the NYSE is open. Purchases and sales of
fund shares are executed at the NAV next determined after the fund receives your
order. In calculating NAV, securities for which market quotations are available
are valued at those quotations. Securities for with such quotations are not
available are valued at fair value under procedures approved by the Board.
Lord Abbett Distributor LLC ("Lord Abbett Distributor") acts as agent for the
fund to work with investment professionals that buy and/or sell shares of the
fund on behalf of their clients. Generally, Lord Abbett Distributor does not
sell fund shares directly to investors.
Important Information. You may be subject to a $50 penalty under the Internal
Revenue Code if you do not provide a correct taxpayer identification number
(Social Security Number for individuals) or make certain required
certifications. In addition, we may be required to withhold from your account
and pay to the U.S. Treasury 31% of any redemption proceeds and any dividend or
distribution from your account.
Eligible Guarantor is any broker or bank that is a member of the medallion stamp
program. Most major securities firms and banks are members of this program. A
notary public is not an eligible guarantor.
4 Your Investment
<PAGE>
Service Activities. We may pay Rule 12b-1 service fees to Authorized
Institutions for any activity which is primarily intended to result in
personal service and/or the maintenance of shareholder accounts. Any
portion of the service fees paid to Lord Abbett Distributor will be used
to service and maintain shareholder accounts.
MANAGEMENT
The funds' investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with approximately $28 billion in
more than 35 mutual fund portfolios and other advisory accounts. For more
information about the services Lord Abbett provides to the funds, see the
Statement of Additional Information.
The fund pays Lord Abbett a monthly fee based on average daily net assets
for each month. For the fiscal year ended December 31, 1998, the fee paid
to Lord Abbett was at an annual rate of .__ of 1% for the fund. In
addition, the fund pays all expenses not expressly assumed by Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the company's investments. Robert G. Morris, Lord Abbett
Partner, heads the team, the senior members of which are W. Thomas Hudson,
Jr., Partner of Lord Abbett, and Eli Salzman. Messrs. Morris and Hudson
have been with Lord Abbett for more than five years. Mr. Salzman joined
Lord Abbett in 1997; prior to that he was a Vice President with Mutual of
America Capital Corp. from 1996 to 1997, and was a Vice President at
Mitchell Hutchins Asset Management, Inc. from 1986 to 1996.
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be
used by the fund and their risks.
Adjusting Investment Exposure. The fund may, but is not required to, use
various strategies to change its investment exposure to adjust to changing
security prices, interest rates, currency exchange rates, commodity prices
and other factors. These strategies may involve buying or selling
derivative instruments, such as options and futures contracts, stripped
securities, currency exchange contracts, swap agreements, short sales of
securities, indexed securities and rights and warrants. The fund may use
these transactions to change the risk and return characteristics of the
fund's portfolio. If we judge market conditions incorrectly or use a
strategy that does not correlate well with the fund's investments, it
could result in a loss, even if we intended to lessen risk or enhance
returns. These transactions may involve a small investment of cash
compared to the magnitude of the risk assumed and Small Accounts. Our
Board may authorize closing any account in which there are fewer than 25
shares if it is in a fund's best interest to do so. For More Information
could produce disproportionate gains or losses. Also, these strategies
could result in losses if the counterparty to a transaction does not
perform as promised.
Borrowing. The fund may borrow from banks. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. Each fund may borrow only for temporary or emergency purposes,
and not more than 331/3% of its total assets.
Foreign Securities. These securities are not subject to the same degree of
regulation and may be more volatile and less liquid than securities traded
in major U.S. markets. This affect block trading. Foreign portfolio
securities maybe traded on days when an underlying fund does not value
them. Fund share prices could be affected on days an investor cannot
purchase or sell shares. Other risks include less information on public
companies, banks
Your Investment 5
<PAGE>
For More Information
and governments; political and social instability; expropriations; higher
transaction costs; currency fluctuations; nondeductable withholding taxes
and different accounting and settlement practices.
Illiquid Securities. These securities include those that are not traded on
the open market or that trade irregularly or in very low volume. They may
be difficult or impossible to sell at the time and price the fund would
like. The fund may invest up to 15% of its assets in illiquid securities.
Portfolio Securities Lending. The fund may lend securities to
broker-dealers and financial institutions, as a means of earning income.
This practice could result of a loss or delay in recovering a fund's
securities, if the borrower defaults. The fund will limit its securities
loans to 331/3% of its total assets.
Repurchase Agreements. In a repurchase agreement, a fund buys a security
at one price from a broker-dealer or financial institution and
simultaneously agrees to sell the same security back to the same party at
a higher price in the future. If the other party to the agreement defaults
or becomes insolvent, the fund could lose money.
GLOSSARY OF SHADED TERMS
Additional Concessions. Lord Abbett Distributor may, for specified
periods, allow dealers to retain the full sales charge for sales of shares
or may pay an additional concession to a dealer who sells a minimum dollar
amount of our shares and/or shares of other Lord Abbett-sponsored funds.
In some instances, such additional concessions will be offered only to
certain dealers expected to sell significant amounts of shares. Additional
payments may be paid from Lord Abbett Distributor's own resources or from
distribution fees received from a fund and will be made in the form of
cash or, if permitted, non-cash payments. The non-cash payments will
include business seminars at Lord Abbett's headquarters or other
locations, including meals and entertainment, or the receipt of
merchandise. The cash payments may include payment of various business
expenses of the dealer.
In selecting dealers to execute portfolio transactions for a fund's
portfolio, if two or more dealers are considered capable of obtaining best
execution, we may prefer the dealer who has sold our shares and/or shares
of other Lord Abbett-sponsored funds.
Authorized Institutions. Institutions and persons permitted by law to
receive service and/or distribution fees under a Rule 12b-1 plan are
"authorized institutions." Lord Abbett Distributor is an Authorized
Institution.
RECENT PERFORMANCE
Our mid-year concerns regarding the future health of world markets turned
out to be extremely well-founded. As we feared, the Asian economic and
currency crises, along with economic problems in Russia, had a negative
impact on U.S. corporate profits and on U.S. investor confidence. As a
result, investors focused on a very small number of the perceived "safer"
largest growth stocks. The performance of out portfolio was negatively
affected by this investor focus on large-capitalization growth stocks,
which caused large value stocks to underperform.
Starting January 1, 2001, sales of securities held for more than five years will
be taxed at special lower rates.
Any gains realized on a fund's transactions in options and financial futures
will be treated as taxable long- or short-term capital gains.
Lord Abbett offers a variety of Retirement Plans. Call 800-253-7299 for
information about:
o Traditional, Rollover, Roth and Education IRAs
o Simple IRAs, SEP-IRAs, 401(k) and 403(b) accounts
o Defined Contribution Plans
6 For More Information
<PAGE>
Financial markets, meanwhile, have shown increased volatility over concern
regarding the likelihood that corporate earnings will fall short of
previous estimates and evidence of a global credit crunch. However, our
expectation for the U.S. economy at this time is not recession, but rather
that we have reached a turning point and will now see slower growth.
Consumer activity, which comprises well over have the economy, continues
to provide support for growth with additional gains seen in job creation,
income and spending. Business spending, however, is slowing down and
recession abroad is likely to reduce exports. Both developments will have
a flattening effect on corporate profit growth.
12b-1 fees are payable regardless of expenses. The amounts payable by a fund
need not be directly related to expenses. If Lord Abbett Distributor's actual
expenses exceed the fee payable to it, a fund will not have to pay more than
that fee. If Lord Abbett Distributor's expenses are less than the fee it
receives, Lord Abbett Distributor will keep the full amount of the fee.
Year 2000 issues. Each fund could be adversely affected if the computers used by
each fund and their service providers do not properly process and calculate
date-related information from and after January 1, 2000.
While year 2000-related computer problems could have a negative effect on each
fund, Lord Abbett is working to avoid such problems and has assurances from each
fund's service providers that they are taking similar steps. However, because
the problem is unprecedented, we don't know whether these efforts will be
successful. Accordingly, each fund may be adversely affected.
For More Information 7
<PAGE>
8 For More Information
<PAGE>
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Deloitte & Touche
LLP independent auditors, whose report thereon is incorporated by
reference into the Statement of Additional Information and may be obtained
on request. The total return information for the portfolio shown in the
table below does not reflect expenses of a separate account or any
variable contracts. If such charges were included, the total return
figures would be lower for all periods shown. Further information about
the portfolio's performance is contained in the Annual Report to
shareholders which may be obtained without charge by calling one of the
800 numbers mentioned therein.
<TABLE>
<CAPTION>
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Growth & Income Portfolio - Class VC
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Year Ended December 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 19.510 $ 17.022 $ 15.241 $ 12.71 $ 13.15
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Income from investment operations
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Net investment Income .360(a) .393(a) .408 .459 .41
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Net realized and unrealized
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gain (loss) on investments 2.149 3.755 2.563 3.332 (.045)
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Total from investment operations 2.509 4.148 2.971 3.791 .365
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Distributions
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Dividends from Net Investment Income (.325) (.34) (.36) (.36) (.33)
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Distributions from net realized gain (1.045) (1.32) (.83) (.90) (.475)
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Net asset value, end of year $ 20.649 $ 19.510 $ 17.022 $ 15.241 $ 12.71
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Total Return(c) 12.82% 24.34% 19.49% 29.82% 2.76%
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Ratios/ Supplemental Data:
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Net assets, end of year $ 714,274 $ 512,438 $ 303,982 $ 193,575 $ 114,608
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Expenses, including waiver .51% .52% .52% .52% .59%
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Expenses, excluding waiver .00% .52% .52% .52% .59%
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Net investment income 1.78% 2.02% 2.32% 2.91% 2.97%
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Year Ended December 31,
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Ratios/Supplemental Data: 1998 1997 1996 1995 1994
Net assets, end of period (000) $ 000,000 $ 512,438 $ 303,982 $ 193,575 $ 114,608
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Portfolio turnover rate 76.62% 43.09% 48.93% 70.30% 68.94%
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Average Commission per share
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paid on equity turnover 0.01% 0.63% 0.65% 0.66% N/A
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</TABLE>
(a) Calculated using average shares outstanding during the period. See Notes
to Financial Statements.
Financial Information 9
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LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class VC
shares to the same investment in the Index, assuming reinvestment of all
dividends and distributions.
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AWAITING DATA
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Average Annual Total Return At Maximum Applicable
Sales Charge For The Periods Ending December 31, 1998
1 Year 5 Years 10 Years (or Life)
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Class VC(2) 0.00% 0.00% 0.00%
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(1) Performance for the unmanaged S&P 500(R) Index does not reflect
transaction costs, management fees or sales charges.
(2) The class VC shares were first offered on 12/11/94.
10 Financial Information
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For More Information
--------------------
More information on these funds is available free upon request, including:
ANNUAL/SEMI-ANNUAL REPORT
Describes the fund, lists portfolio holdings and contains a letter from
the fund's manager discussing recent market conditions and the fund's
investment strategies.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the fund and its policies. A current SAI is on
file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this prospectus).
To obtain information:
By telephone. Call the fund at: 800-426-1130
By mail. Write to the fund at:
The Lord Abbett Family of Funds
767 Fifth Avenue
New York, NY 10153-0203
Via the Internet. Text only versions of fund documents can be viewed online or
downloaded from:
Lord, Abbett & Co.
http://www.lordabbett.com
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
Series Fund
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
---------------------------
SEC file number: 811-3942
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LORD ABBETT SERIES FUND, INC. May 1, 1999
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from Lord, Abbett & Co ("Lord Abbett"), The General Motors Building,
767 Fifth Avenue, New York, N.Y. 10153-0203. This Statement relates to, and
should be read in conjunction with, the Prospectus dated May 1, 1999.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-831-LIFE with respect to Variable Contracts of Cova Financial
Services Life Insurance Company and 800-342-6307 with respect to Variable
Contracts of Great American Reserve Insurance Company.
TABLE OF CONTENTS Page
1. Investment Objectives and Policies.......................................2
2. Directors and Officers...................................................6
3. Control Persons and Principal Holders of Securities......................9
4. Investment Advisory and Other Services..................................10
5. Portfolio Transactions..................................................11
6. Net Asset Value of Fund Shares..........................................13
7. Dividends and Distributions.............................................13
8. Distribution Arrangements...............................................14
9. Taxes...................................................................14
10. Calculation of Performance Data.........................................15
11. Financial Statements....................................................15
<PAGE>
1.
Investment Objectives and Policies
The Fund's investment objectives and policies are described in the Prospectus
under "Goal/Approach," "Risks," and "Other Investment Techniques." In addition
to those investment objectives, the Growth and Income Portfolio (the
"Portfolio") is subject to the following investment restrictions which cannot be
changed without approval of a majority of the outstanding shares of the
Portfolio. The Portfolio may not: (1) sell short securities or buy securities or
evidences of interests therein on margin, although it may obtain short-term
credit necessary for the clearance of purchases of securities; (2) buy or sell
put or call options, although it may buy, hold or sell rights or warrants, write
covered call options and enter into closing purchase transactions as discussed
below; (3) borrow money which is in excess of one-third of the value of its
total assets taken at market value (including the amount borrowed) and then only
from banks as a temporary measure for extraordinary or emergency purposes
(borrowings beyond 5% of such total assets may not be used for investment
leverage to purchase securities but solely to meet redemption requests where the
liquidation of the Portfolio's investment is deemed to be inconvenient or
disadvantageous); (4) invest in securities or other assets not readily
marketable at the time of purchase or subject to legal or contractual
restrictions on resale except as described under "Restricted or Not Readily
Marketable Securities for the Fund's Portfolio" below; (5) act as underwriter of
securities issued by others, unless it is deemed to be one in selling a
portfolio security requiring registration under the Securities Act of 1933, such
as those described under "Restricted or Not Readily Marketable Securities for
the Fund's Portfolio" below; (6) lend money or securities to any person except
that it may enter into short-term repurchase agreements with sellers of
securities it has purchased, and it may lend its portfolio securities to
registered broker-dealers where the loan is 100% secured by cash or its
equivalent as long as it complies with regulatory requirements and the Fund
deems such loans not to expose the Portfolio to significant risk (investment in
repurchase agreements exceeding 7 days and in other illiquid investments is
limited to a maximum of 5% of a Portfolio's assets); (7) pledge, mortgage or
hypothecate its assets; however, this provision does not apply to permitted
borrowing mentioned above or to the grant of escrow receipts or the entry into
other similar escrow arrangements arising out of the writing of covered call
options; (8) buy or sell real estate including limited partnership interests
therein (except securities of companies, such as real estate investment trusts,
that deal in real estate or interests therein), or oil, gas or other mineral
leases, commodities or commodity contracts in the ordinary course of its
business, except such interests and other property acquired as a result of
owning other securities, though securities will not be purchased in order to
acquire any of these interests; (9) invest more than 5% of its gross assets,
taken at market value at the time of investment, in companies (including their
predecessors) with less than three years' continuous operation; (10) buy
securities if the purchase would then cause a Portfolio to have more than (i) 5%
of its gross assets, at market value at the time of purchase, invested in
securities of any one issuer, except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or (ii) 25% of its gross assets,
at market value at the time of purchase, invested in securities issued or
guaranteed by a foreign government, its agencies or instrumentalities; (11) buy
voting securities if the purchase
2
<PAGE>
would then cause a Portfolio to own more than 10% of the outstanding voting
stock of any one issuer; (12) own securities in a company when any of its
officers, directors or security holders is an officer or director of the Fund or
an officer, director or partner of the Investment Manager or sub-adviser, if
after the purchase any of such persons owns beneficially more than 1/2 of 1% of
such securities and such persons together own more than 5% of such securities;
(13) concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its gross
assets (at market value at the time of investment) may be invested in any one
industry classification used for investment purposes; or (14) buy securities
from or sell them to the Fund's officers, directors, or employees, or to the
Investment Manager or sub-adviser or to their partners, directors and employees.
Changes in Fund Objectives, Restrictions, Policies and Strategies
The Fund's investment objectives described in the Prospectus and the Fund's
investment restrictions described above in this Statement of Additional
Information, both can be changed only with the approval of a majority of the
outstanding shares of the affected Portfolio. All of the Fund's policies and
techniques, including those described below, can be changed without such
approval.
Investment Techniques
The Fund intends to utilize from time to time one or more of the investment
techniques described below, including covered call options, rights and warrants
and repurchase agreements. It is the Fund's current intention that no more than
5% of the Portfolio's net assets will be at risk in the use of any one of such
investment techniques. While some of these techniques involve risk when utilized
independently, the Fund intends to use them to reduce risk and volatility in its
Portfolio.
Covered Call Options. The Fund may write call options on securities it owns. A
call option on stock gives the purchaser of the option, upon payment of a
premium to the writer of the option, the right to call upon the writer to
deliver a specified number of shares of a stock on or before a fixed date at a
predetermined price.
The writing of call options will, therefore, involve a potential loss of
opportunity to sell securities at higher prices. The writer of a fully
collateralized call option assumes the full downside risk of the securities
subject to such option. In addition, in exchange for the premium received, the
writer of the call gives up the gain possibility of the stock appreciating
beyond the call price. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the sum of the
premium (less brokerage commissions and fees) plus the difference between the
strike price of the call and the market price of the underlying security.
The Fund's custodian will segregate cash, liquid high grade debt securities or
other permitted securities in an amount not less than the value of the Fund's
assets committed
3
<PAGE>
to written covered call options. If the value of the securities segregated
declines, additional cash or permitted securities will be added on a daily basis
(i.e., marked to market) so that the segregated amount will not be less than the
amount of the Fund's commitments with respect to such written options.
Rights and Warrants. The Fund may invest in rights and warrants to purchase
securities. Included within that amount, but not to exceed 2% of the value of
the Portfolio's net assets, may be warrants which are not listed on the New York
Stock Exchange or American Stock Exchange.
Rights represent a privilege offered to holders of record of issued securities
to subscribe (usually on a pro rata basis) for additional securities of the same
class, of a different class, or of a different issuer, as the case may be.
Warrants represent the privilege to purchase securities at a stipulated price
and are usually valid for several years. Rights and warrants generally do not
entitle a holder to dividends or voting rights with respect to the underlying
securities nor do they represent any rights in the assets of the issuing
company.
Also, the value of a right or warrant may not necessarily change with the value
of the underlying securities, and rights and warrants cease to have value if
they are not exercised prior to their expiration date.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to a security. A repurchase agreement is a transaction by which the Fund
acquires a security and simultaneously commits to resell that security to the
seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon
date. The resale price reflects the purchase price plus an agreed-upon market
rate of interest which is unrelated to the coupon rate or date of maturity of
the purchased security. In this type of transaction, the securities purchased by
the Fund have a total value in excess of the value of the repurchase agreement.
The Fund requires at all times that the repurchase agreement be collateralized
by cash or U.S. government securities having a value equal to, or in excess of,
the value of the repurchase agreement. Such agreements permit the Fund to keep
all of its assets at work while retaining flexibility in pursuit of investments
of a longer-term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the Fund
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Fund and
therefore subject to sale by the trustee in bankruptcy. Even though the
repurchase agreements may have maturities of seven days or less, they may lack
liquidity, especially if the issuer encounters financial difficulties. While the
Fund acknowledges these risks, it is expected that they can be controlled
through stringent selection criteria and careful monitoring procedures. The Fund
intends to limit
4
<PAGE>
repurchase agreements to transactions with dealers and financial institutions
believed by the Fund to present minimal credit risks. The Fund will monitor
creditworthiness of the repurchase agreement sellers on an ongoing basis.
Restricted or Not Readily Marketable Securities for the Fund's Portfolio
Although the Fund has no current intention of investing in such securities in
the foreseeable future, no more than 5% of the value of the Portfolio may be
invested in securities with legal or contractual restrictions on resale
("restricted securities") (including securities qualifying for resale under SEC
Rule 144A that are determined by the Board, or by Lord Abbett pursuant to the
Board's delegation, to be liquid securities, restricted securities, repurchase
agreements with maturities of more than seven days and over-the-counter
options), other than repurchase agreements and those restricted securities which
have a liquid market among certain institutions, including the Fund, and in
securities which are not readily marketable.
Lending of Securities by the Fund's Portfolio
Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may seek to earn income by lending portfolio securities. Under
present regulatory policies, such loans may be made to member firms of the New
York Stock Exchange and are required to be secured continuously by collateral
consisting of cash, cash equivalents, or United States Treasury bills maintained
in an amount at least equal to the market value of the securities loaned. The
Fund will have the right to call a loan and obtain the securities loaned at any
time on five days' notice. During the existence of a loan the Fund will receive
the income earned on investment of collateral. The aggregate value of the
securities loaned will not exceed 15% of the value of the Portfolio's total
assets.
Portfolio Turnover Rates
For the fiscal year ended December 31, 1998, the portfolio turnover rate of the
Portfolio was % compared to 43.09% for the prior fiscal year.
2.
Directors and Officers
The following director is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also an officer,
director, or trustee of twelve other Lord Abbett-sponsored funds. He is an
"interested person" as defined in the Act, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plan described in the
Prospectus.
Robert S. Dow, age 53, Chairman and President
5
<PAGE>
The following outside directors are also directors or trustees of twelve other
Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer of
Courtroom Television Network (1997 - 1998). Formerly, President and Chief
Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). Prior to
that, President and Chief Operating Officer of Home Box Office, Inc. Age 57.
William H.T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri
Co-founder and Chairman of the Board of financial advisory firm of
Bush-O'Donnell & Company. Age 60.
Robert B. Calhoun, Jr.
Monitor Clipper partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of The Clipper Group
L.P., both private equity investment funds. Age 56.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 68.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 73.
C. Alan MacDonald
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
6
<PAGE>
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly, General Partner of The Marketing Partnership,
Inc., a full service marketing consulting firm (1994-1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992-1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J. B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company. Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as a Director of Ace, Ltd. (NYSE). Age 61.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third column sets forth information with
respect to the equity-based benefits accrued for outside directors by the Lord
Abbett-sponsored funds. The fourth sets forth the total compensation payable by
such funds to the outside directors. No director of the Fund associated with
Lord Abbett and no officer of the Fund received any compensation from the Fund
for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31, 1998
-------------------------------------------
(1) (2) (3) (4)
Pension or For Year Ended
Retirement Benefits December 31, 1998
Accrued by the Total Compensation
Aggregate Fund and Accrued by the Fund and
Compensation Twelve Other Lord Twelve Other Lord
Accrued by Abbett-sponsored Abbett-sponsored
Name of Director the Fund(1) Funds(2) Funds(3)
- ---------------- ----------- -------- --------
<S> <C> <C>
E. Thayer Bigelow $ $17,068 $56,000
Stewart S. Dixon $ $32,190 $55,000
John C. Jansing $ $45,085(4) $55,000
C. Alan MacDonald $ $30,703 $57,400
Hansel B. Millican, Jr. $ $37,747 $55,000
Thomas J. Neff $ $19,853 $56,000
</TABLE>
7
<PAGE>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund. A portion of the fees payable by the Fund to its
outside directors is being deferred under a plan that deems the deferred
amounts to be invested in shares of the Fund for later distribution to the
directors.
2. The amounts in Column 3 were accrued by the Lord Abbett-Sponsored Funds
for the 12 months ended December 31, 1998 with respect to the equity based
plans established for independent directors in 1996. This plan supercedes
a previously approved retirement plan for all future directors. Current
directors had the option to convert their accrued benefits under the
retirement plan. All of the outside directors except one made such an
election. Each plan also provides for a pre-retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits.
3. This column shows aggregate compensation, including directors fees and
attendance fees for board and committee meetings, of a nature referred to
in footnote one, accrued by the Lord Abbett-sponsored funds during the
year ended December 31, 1998. The amounts of the aggregate compensation
payable by the Fund as of December 31, 1998 deemed invested in Fund
shares, including dividends reinvested and changes in net asset value
applicable to such deemed investments, were: Mr. Bigelow, $ Mr. Dixon,
$ ; Mr. Jansing, $ ; Mr. MacDonald, $ ; Mr. Millican, $
and Mr. Neff, $ . If the amounts deemed invested in Fund shares were
added to each director's actual holdings of Fund shares as of December 31,
1998, each would own, the following: Mr. Bigelow, shares; Mr. Dixon,
shares; Mr. Jansing, shares; Mr. McDonald, shares; Mr. Millican, shares;
and Mr. Neff, shares.
4. Mr. Jansing chose to continue to receive benefits under the retirement
plan, which provides that outside directors (Trustees) may receive annual
retirement benefits for life equal to their final annual retainer
following retirement at or after age 72 with at least ten years of
service. Thus, if Mr. Jansing were to retire and the annual retainer
payable by the funds were the same as it is today, he would receive annual
retirement benefits of $50,000.
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Carper, Hilstad, Hudson, Morris and Walsh are partners of Lord Abbett;
the others are employees:
Executive Vice President
W. Thomas Hudson, age 56
Vice Presidents
Paul A. Hilstad, age 56 (with Lord Abbett since 1995; formerly Senior Vice
President and General Counsel of American Capital Management & Research, Inc.)
8
<PAGE>
Zane E. Brown, age 46
Daniel E. Carper, age 46
Robert G. Morris, age 53
Lawrence H. Kaplan, age 41 (with Lord Abbett since 1997 - formerly, Vice
President and Chief Counsel of Salomon Brothers Asset Management Inc
(1995-1997); prior thereto, Senior Vice President, Director and General Counsel
of Kidder Peabody Asset Management, Inc. (1990-1995))
Thomas F. Konop, age 56
A. Edward Oberhaus, age 38
Keith O'Connor, age 42
John J. Walsh, age 62, Vice Presidents
Treasurer
Donna M. McManus, age 38, Treasurer (with Lord Abbett since 1996; formerly a
Senior Manager at Deloitte & Touche LLP).
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called at the request of a majority of
the Board of Directors or by stockholders holding at least one-quarter of the
stock of the Fund outstanding and entitled to vote at the meeting. When any such
annual meeting is held, the stockholders will elect directors to hold the
offices of any directors who have held office for more than one year or who have
been elected by the Board of Directors to fill vacancies. Under the By-Laws and
in accordance with the Act, stockholder approval of the independent auditors of
the Fund will not be required except when such meetings are held.
9
<PAGE>
3.
Control Persons and Principal Holders of Securities Substantial Shareholders
As of March 31, 1998, COVA Variable Annuity Accounts One, Five, Six, and Seven,
separate accounts of COVA Financial Services Life Insurance Company, One Tower
Lane, Oakbrook Terrace, Illinois 60181 ("COVA Life"), was known to the Board of
Directors and the management of the Fund to own of record 28,282,357 shares
representing 99.93% of the total shares issued and outstanding of the Portfolio.
As of the same date, Great American Reserve Insurance Company, 11815 North
Pennsylvania St., Carmel, Indiana 46032, and Sun Life of Canada (U.S.), 1 Copley
Place, Suite 200, Boston, Massachusetts 02116 were so known to own of record
1,408 shares representing .01% and 46 shares representing less than 1/2 of 1%,
respectively. Also, as of such date, Lord Abbett was known to own of record
17,653 shares representing .06% of the total shares issued and outstanding. As
of that date, the officers and directors of the Fund together owned no Variable
Contracts.
4.
Investment Advisory and Other Services
As described under "Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. Eight of the general partners of Lord Abbett are officers
and/or directors of the Fund and are identified as follows: Zane E. Brown,
Daniel E. Carper, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Robert G.
Morris, and John J. Walsh. The other general partners of Lord Abbett are Stephen
I. Allen, John E. Erard, Robert P. Fetch, Daria L. Foster, Robert I. Gerber,
Stephen I. McGruder, Michael B. McLaughlin, Robert J. Noelke, Mark R. Pennington
and Christopher J. Towle.
The address of each partner is The General Motors Building, 767 Fifth Avenue,
New York, New York 10153-0203.
Lord Abbett acts as investment manager for twelve other investment companies
comprising the Lord Abbett family of funds. The names of these investment
companies are:
Lord Abbett Affiliated Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett Mid-Cap Value Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett Tax-Free Income Trust
Lord Abbett Equity Fund
Lord Abbett U.S. Government Securities Money Market Fund, Inc.
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Lord Abbett Research Fund, Inc.
10
<PAGE>
The services to be provided by Lord Abbett are described under "Management" in
the Prospectus. Under the Management Agreement, the Fund on behalf of the
Portfolio is obligated to pay Lord Abbett a monthly fee, based on the average
daily net assets of the Portfolio for each month, at the annual rate of 0.50 of
1%. For the fiscal years ended December 31, 1996, 1997 and 1998, Lord Abbett
received $1,234,273, $2,019,891 and $ in advisory fees, respectively.
The Fund pays all expenses not expressly assumed by Lord Abbett, including,
without limitation, outside directors' fees and expenses, association membership
dues, legal and auditing fees, taxes, transfer and dividend disbursing agent
fees, shareholder servicing costs, expenses relating to shareholder meetings,
expenses of preparing, printing and mailing stock certificates and shareholder
reports, expenses of registering the Fund's shares under federal and state
securities laws, expenses of printing and mailing prospectuses to existing
shareholders, insurance premiums, brokerage and other expenses connected with
executing portfolio transactions.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors of the Fund and must be approved at least annually by
the Fund's Board of Directors to continue in such capacity. They perform audit
services for the Fund including the examination of financial statements included
in the Fund's annual report to shareholders.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York, is the Fund's
custodian. In accordance with the requirements of Rule 17f-5, the Fund's
directors have approved arrangements permitting the Fund's foreign assets not
held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
5.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, we generally pay, as described below, a higher commission than
some brokers might charge on the same transactions. Our policy with respect to
best execution governs the selection of brokers or dealers and the market in
which the transaction is executed. To the extent permitted by law, we may, if
considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also
11
<PAGE>
officers) and other investment clients -- managed by Lord Abbett. They are
responsible for obtaining best execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and ability to take
positions in securities, knowledge of a particular security or market proven
ability to handle a particular type of trade, confidential treatment, promptness
and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received form brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
12
<PAGE>
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
During the fiscal years ended December 31, 1998, 1997 and 1996, the total dollar
amounts of brokerage commissions paid by the Fund were $ , $
and $ , respectively.
6.
Net Asset Value of Fund Shares
Information concerning how we value our shares for the purchase and redemption
of our shares is contained in the Prospectus under "Purchases and Redemptions."
As disclosed in the Prospectus, we calculate our net asset value as of the close
of the New York Stock Exchange ("NYSE") (normally at 4:00 P.M. Eastern Standard
Time) on each day that the NYSE is open for trading by dividing our total net
assets by the number of shares outstanding at the time of calculation. The NYSE
is closed on Saturdays and Sundays and the following holidays -- New Year's Day,
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Valuation of Securities Held in the Portfolio
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
13
<PAGE>
7.
Dividends and Distributions
It is the Fund's intention to distribute substantially all the net investment
income, if any, of the Portfolio. For dividend purposes, net investment income
of the Portfolio will consist of dividends and/or interest earned by the
Portfolio less the expenses of such Portfolio.
All net realized capital gains of the Fund, if any, are declared and distributed
annually.
8.
Distribution Arrangements
General
Lord Abbett Distributor LLC ("Lord Abbett Distributor") serves as the
distributor in connection with the offering of the Fund's shares. In connection
with the sale of its shares, the Fund has authorized Lord Abbett Distributor to
provide only such information and to make only such statements and
representations which are not materially misleading or which are contained in
the Fund's then current Prospectus or Statement of Additional Information or
shareholder reports in such financial and other statements which are furnished
to Lord Abbett by the Fund.
The Fund and Lord Abbett Distributor are parties to a Distribution Agreement
that continues in force until December, 1999. The Distribution Agreement may be
terminated by either party and will automatically terminate in the event of its
assignment. The Distribution Agreement may be renewed annually if specifically
approved by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund provided that any such renewal shall be approved
by the vote of a majority of the Directors who are not parties to the
Distribution Agreement and are not "interested persons" of the Fund and have no
direct or indirect financial interest in the operation of the Distribution
Agreement.
9.
Taxes
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended. Under such provisions, the
Fund will not be subject to Federal income tax on that part of its net ordinary
income and net realized capital gains which it distributes to shareholders. The
Portfolio will be treated as a separate entity for Federal income tax purposes
and, therefore, the investments and results of the Portfolio are determined
separately for purposes of determining whether the Fund qualifies as a regulated
investment company and for purposes of determining the Fund's net ordinary
income (or loss) and net realized capital gains (or losses). To qualify for
treatment as a regulated investment company, the Fund must, among other things,
14
<PAGE>
derive in each taxable year at least 90% of its gross income from dividends,
interest and gains from the sale or other disposition of securities and certain
other related income and derive less than 30% of its gross income in each
taxable year from the gains (without deduction for losses) from the sale or
other disposition of securities (including, in certain circumstances, gains from
options, futures, forward contracts and foreign currencies) held for less than
three months.
10.
Calculation of Performance Data
The Portfolio's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T)^n = ERV
where
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1000 purchase at the
end of the period.
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
Using this method to compute average annual compounded rates of total return for
the Portfolio's last one, five and the life of the fund periods ending on
December 31, 1998 were: 24.34%, 17.87% and 16.56%, respectively.
11.
Financial Statements
The financial statements for the fiscal year ended December 31, 1998 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 Annual Report to Shareholders of Lord Abbett
Series Fund, Inc. are incorporated herein by reference to such financial
statements and report in reliance upon the authority of Deloitte & Touche LLP as
experts in auditing and accounting.
15
<PAGE>
PART C OTHER INFORMATION
This Post-Effective Amendment No. 16 (the "Amendment") to the Registrant's
Registration Statement relates only to Series Fund - class VC.
The other series and classes of shares of the Registrant are listed below and
are offered by the Prospectuses and Statements of Additional Information in
Parts A and B, respectively, of the Post-Effective Amendments to the
Registrant's Registration Statements as identified. The following are separate
series and/or classes of shares of the Registrant. This Amendment does not
relate to, amend or otherwise affect the Prospectuses and Statements of
Additional Information contained in the prior Post-Effective Amendments listed
below, and pursuant to Rule 485(d) under the Securities Act of 1933, does not
affect the effectiveness of such Post-Effective Amendments.
POST-EFFECTIVE
AMENDMENT NO.
-------------
Bond Debenture Portfolio- Class VC 13
Mid-Cap Value Portfolio- Class VC 14
International Portfolio- Class VC 15
Item 23 Exhibits
(a) Articles of Incorporation are incorporated by reference to
Post-Effective Amendment No. to the Registration Statement on
Form N-1A filed on .
(b) By-Laws filed herewith.
(c) Instruments Defining Rights of Security Holders incorporated
by reference.
(d) Investment Advisory Contracts incorporated by reference.
(e) Underwriting Contracts incorporated by reference.
(f) Bonus or Profit Sharing Contracts is incorporated by reference
to Post Effective Amendment No. 6 to the Registration
Statement on Form N-1A filed on October 7, 1994.
(g) Custodian Agreements incorporated by reference.
(h) Other Material Contracts incorporated by reference.
(i) Legal Opinion incorporated by reference.
(j) Other Opinion. Consent of Independent Auditors filed herewith.
(k) Omitted Financial Statements incorporated by reference.
(l) Initial Capital Agreements incorporated by reference.
(m) Rule 12b-1 Plan incorporated by reference to Post Effective
Amendment No. 12 filed on August 29, 1996.
(n) Financial Data Schedule. Filed herewith.
(o) Rule 18f-3 Plan. Incorporated by reference to Post Effective
Amendment No. 12 filed on August 29, 1996.
Item 24 Persons Controlled by or Under Common Control with the Fund
None.
Item 25 Indemnification
All Trustees, officers, employees and agents of Registrant are to be
indemnified as set forth in Section 4.3 of Registrant's Declaration
of Trust.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expense incurred or paid by a Trustee, officer or
controlling person of
1
<PAGE>
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
In addition, Registrant maintains a Trustees' and officers' errors
and omissions liability insurance policy protecting Trustees and
officers against liability for breach of duty, negligent act, error
or omission committed in their capacity as Trustees or officers. The
policy contains certain exclusions, among which is exclusion from
coverage for active or deliberate dishonest or fraudulent acts and
exclusion for fines or penalties imposed by law or other matters
deemed uninsurable.
Item 26 Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment adviser for twelve other
investment companies (of which it is principal underwriter for
thirteen) and as investment adviser to approximately 8,300 private
accounts as of September 30, 1998. Other than acting as trustees,
directors and/or officers of open-end investment companies managed
by Lord, Abbett & Co., none of Lord, Abbett & Co.'s partners has, in
the past two fiscal years, engaged in any other business,
profession, vocation or employment of a substantial nature for his
own account or in the capacity of director, officer, employee,
partner or Trustee of any entity.
Item 27 Principal Underwriters
(a) Lord Abbett Mid-Cap Value Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U.S. Government Money Market Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Tax-Free Income Trust
Lord Abbett Affiliated Fund, Inc.
Lord Abbett Investment Trust
Lord Abbett Research Fund, Inc.
Lord Abbett Securities Trust
Investment Advisor
American Skandia Trust (Lord Abbett Growth & Income Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
-------------------- ---------------
Robert S. Dow Chairman and President
W. Thomas Hudson Executive Vice President
Paul A. Hilstad Vice President & Secretary
Zane E. Brown Vice President
Daniel E. Carper Vice President
Robert G. Morris Vice President
John J. Walsh Vice President
The other general partners of Lord Abbett & Co. who are neither
officers nor directors of the
2
<PAGE>
Registrant are Stephen I. Allen, John E. Erard, Robert P. Fetch,
Daria L. Foster, Robert I. Gerber, Thomas W. Hudson, Jr., Stephen I.
McGruder, Michael McLaughlin, Robert J. Noelke, R. Mark Pennington,
and Christopher J. Towle.
Each of the above has a principal business address: 767 Fifth
Avenue, New York, NY 10153
(c) Not applicable
Item 28 Location of Accounts and Records
Registrant maintains the records, required by Rules 31a - 1(a) and
(b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules 31a -
1(f) and 31a - 2(e) at its main office.
Certain records such as cancelled stock certificates and
correspondence may be physically maintained at the main office of
the Registrant's Transfer Agent, Custodian, or Shareholder Servicing
Agent within the requirements of Rule 31a-3.
Item 29 Management Services
None
Item 30 Undertakings
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
The registrant undertakes, if requested to do so by the holders of
at least 10% of the registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting upon the question
of removal of a director or directors and to assist in
communications with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940, as amended.
3
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below on this Amendment to the
Registration Statement hereby constitutes and appoints Paul A. Hilstad, Thomas
F. Konop, and Lawrence H. Kaplan , and each of them, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto), and to file the same, with all exhibits thereto), and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
- ---------- ----- ----
Chairman, President
/s/Robert S. Dow and Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
Robert S. Dow
/s/E.Thayer Bigelow Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
E. Thayer Bigelow
/s/William H.T. Bush Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
William H. T. Bush
/s/Robert B. Calhoun Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
Robert B. Calhoun
/s/Stewart S. Dixon Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
Stewart S. Dixon
/s/John C. Jansing Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
John C. Jansing
/s/C. Alan MacDonald Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
C. Alan MacDonald
/s/Hansel B. Millican, Jr.. Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
Hansel B. Millican, Jr.
/s/Thomas J. Neff Director/Trustee 2/26/99
- --------------------------- --------------------------- -------------------
Thomas J. Neff
<PAGE>
BY-LAWS
OF
LORD ABBETT SERIES FUND, INC.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation in
Maryland shall be in the City of Baltimore, and the name of the resident agent
in charge thereof is The Prentice-Hall Corporation Systems, Maryland.
Section 2. Other Offices. The Corporation may also have an office in the
City and State of New York and offices at such other places as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS MEETINGS
Section 1. Annual Meetings. The Corporation shall not hold an annual
meeting of its stockholders in any fiscal year of the Corporation unless
required in accordance with the following sentence. The Chairman of the Board or
the President shall call an annual meeting of the stockholders when the election
of directors is required to be acted on by stockholders under the Investment
Company Act of 1940, as amended, and the
<PAGE>
2
Chairman of the Board, the President, a Vice President, the Secretary or any
director shall call an annual meeting of stockholders at the request in writing
of a majority of the Board of Directors or of stockholders holding at least one
quarter of the stock of the Corporation outstanding and entitled to vote at the
meeting. Any annual meeting of the stockholders held pursuant to the foregoing
sentence shall be held at such time and at such place, within the City of New
York or elsewhere, as may be fixed by the Chairman of the Board or the President
or the Board of Directors or by the stockholders holding at least one-quarter of
the stock of the Corporation outstanding and entitled to vote, as the case may
be, and as may be stated in the notice setting forth such call, provided that
any stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to the stockholders. Any meeting of
stockholders held in accordance with this Section 1 shall for all purposes
constitute the annual meeting of stockholders for the fiscal year of the
Corporation in which the meeting is held and, without limiting the generality of
the foregoing, shall be held for the purposes of (a) acting on any such matter
of matters so required to be acted on by stockholders under the Investment
Company Act of 1940, as amended, and (b) electing directors, and for transacting
such other business as may properly be bought before the meeting. Only such
business, in addition to that prescribed by law, by the Articles of
Incorporation and by these By-Laws, may be brought before such meeting as may be
specified by resolution of
<PAGE>
3
the Board of Directors or by writing filed with the Secretary of the Corporation
and signed by the Chairman of the Board or by the President or by a majority of
the directors or by stockholders holding at least one-quarter of the stock of
the Corporation outstanding and entitled to vote at the meeting.
Section 2. Special meetings. Special meetings of the stockholders for any
purpose or purposes may be held upon call by the Chairman of the Board or by a
majority of the Board of Directors, and shall be called by the Chairman of the
Board, the President, a Vice President, the Secretary or any director at the
request in writing of a majority of the Board of Directors or of stockholders
holding at least one-quarter of the stock of the Corporation outstanding and
entitled to vote at the meeting, at such time and at such place where an annual
meeting of stockholders could be held, as may be fixed by the Chairman of the
Board, the President or the Board of Directors or by the stockholders holding at
least one-quarter of the stock of the Corporation outstanding and so entitled to
vote, as the case may be, and as may be stated in the notice setting forth such
call. Such request shall state the purpose or purposes of the proposed meeting,
and only such purpose or purposes so specified may properly be brought before
such meeting.
Section 3. Notice of Meetings. Written or printed notice of every annual
or special meeting of stockholders, stating the time and place thereof and the
general nature of the business proposed to be transacted at any such meeting,
shall be delivered personally or mailed not less than 10 nor more than 90 days
previous thereto to each
<PAGE>
4
stockholder of record entitled to vote at the meeting at his address as the same
appears on the books of the Corporation. Meetings may be held without notice if
all of the stockholders entitled to vote are present or represented at the
meeting, or if notice is waived in writing, either before or after the meeting,
by those not present or represented at the meeting. No notice of an adjourned
meeting of the stockholders other than an announcement of the time and place
thereof at the preceding meeting shall be required.
Section 4. Quorum. The presence in person or by proxy of the holders of a
majority of the Shares of all Classes issued and outstanding and entitled to
vote thereat shall constitute a quorum for the transaction of any business at
all meetings of the shareholders except as otherwise provided by law or in the
Articles of Incorporation and except that where the holders of Shares of any
Class are entitled to a separate vote as a Class (a "Separate Class") or where
the holders of Shares of two or more (but not all) Classes are required to vote
as a single Class (a "Combined Class"), the presence in person or by proxy of
the holders of a majority of the Shares of that Separate Class or Combined
Class, as the case may be, issued and outstanding and entitled to vote thereat
shall constitute a quorum for such vote. If, however, a quorum with respect to
all Classes, a Separate Class or a Combined Class, as the case may be, issued
and outstanding and entitled to vote thereat shall constitute a quorum for such
vote. If, however, a quorum with respect to all Classes, a Separate Class or a
Combined Class, as the case may be, shall not be present or represented at any
meeting of the shareholders,
<PAGE>
5
the holders of a majority of the Shares of all Classes, such Separate Class or
such Combined Class, as the case may be, present in person or by proxy and
entitled to vote shall have power to adjourn the meeting from time to time as to
all Classes, such Separate Class or such Combined Class, as the case may be,
without notice other than announcement at the meeting, until the requisite
number of Shares entitled to vote at such meeting shall be present. At such
adjourned meeting at which the requisite number of Shares entitled to vote
thereat shall be represented any business may be transacted at the meeting as
originally notified. The absence from any meeting of stockholders of the number
of Shares in excess of a majority of the Shares of all Classes or of the
affected Class or Classes, as the case may be, which may be required by the laws
of the State of Maryland, the Investment Company Act of 1940 or any other
applicable law or the Articles of Incorporation, for action upon any given
matter shall not prevent action of such meeting upon any other matter or matters
which may properly come before the meeting, if there shall be present thereat,
in person or by proxy, holders of the number of Shares required for action in
respect of such matter or matters.
Section 5. Voting. All elections shall be had and all questions decided by
a majority of the votes cast, without regard to Class, at a duly constituted
meeting, except as otherwise provided by law or by the Articles of Incorporation
or by these By-Laws and except that with respect to a question as to which the
holders of Shares of any Class or Classes are entitled or required to vote as a
Separate Class or a Combined Class, as the case may be, such question shall be
decided as to such Separate Class or such Combined Class, as the
<PAGE>
6
case may be, by a majority of the votes cast by Shares of such Separate Class or
such Combined Class, as the case may be.
With respect to all Shares having voting rights (a) a shareholder may vote
the Shares owned of record by him either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact, provided
that no proxy shall be valid after eleven months from its date unless otherwise
provided in the proxy and (b) in all elections for directors every shareholder
shall have the right to vote, in person or by proxy, the Shares owned of record
by him, for as many persons as there are directors to be elected and for whose
election he has a right to vote.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The property, affairs and business of the
corporation shall be managed by the Board of Directors, provided, however, that
the Board of Directors may authorize the Corporation to enter into an agreement
or agreements with any person, corporation, association, partnership or other
organization, subject to the Board's supervision and control, for the purpose of
providing managerial, investment advisory and related services to the
Corporation which may include management or supervision of the investment
portfolio of the Corporation.
<PAGE>
7
Section 2. Number, Class Quorum, Election, Term of Office and
Qualifications. The Board of Directors of the Corporation shall consist of not
less than three or more than fifteen persons, none of whom need be stockholders
of the corporation. The number of directors (within the above limits) shall be
determined by the Board of Directors from time to time, as it sees fit, by vote
of a majority of the whole Board. Directors shall consist of one class only. The
directors shall be elected at each annual meeting of stockholders and, whether
or not elected for a specific term, shall hold office, unless sooner removed,
until their respective successors are elected and qualify.
One-third of the whole Board, but in no event less than two, shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time until a quorum shall have been
obtained, when any business may be transacted which might have been transacted
at the meeting as originally convened. No notice of an adjourned meeting of the
directors other than an announcement of the time and place thereof at the
preceding meeting shall be required. The acts of the majority of the directors
present at any meeting at which there is a quorum shall be the acts of the
Board, except as otherwise provided by law, by the Articles of Incorporation or
by these By-Laws.
Section 3. Vacancies. The Board of Directors, by vote of a majority of the
whole Board, may elect directors to fill vacancies in the Board resulting from
an increase
<PAGE>
8
in the number of directors or from any other cause. Directors so chosen shall
hold office until their respective successors are elected and qualify, unless
sooner displaced pursuant to law or these By-Laws. The stockholders, at any
meeting called for the purpose, may, with or without cause, remove any director
by the affirmative vote of the holders of a majority of the votes entitled to be
cast, and at any meeting called for the purpose may fill the vacancy in the
Board thus caused.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place, within or without the State of Maryland,
as may from time to time be fixed by Resolution of the Board or as may be
specified in the notice of any meeting. No notice of regular meetings of the
Board shall be required except as required by the Investment Company Act of
1940, as amended.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called from time to time by the Chairman of the Board, the President, any
Vice President or any two directors. Each special meeting of the Board shall be
held at such place, either within or outside of the State of Maryland, as shall
be designated in the notice of such meeting. Notice of each such meeting shall
be mailed to each director, at his residence or usual place of business, at
least two days before the day of the meeting, or shall be directed to him at
such place by telegraph or cable, or be delivered to him personally not later
than the day before the day of the meeting. Every such notice shall state the
time
<PAGE>
9
and place of the meeting but need not state the purposes thereof, except as
otherwise expressly provided in these By-Laws or by statute.
Section 6. Telephonic Conference Meetings. Any meeting of the Board or any
committee thereof may be held by conference telephone, regardless where each
director may be located at the time, by means of which all persons participating
in the meeting can hear each other, and participation in such meeting in such
manner shall constitute presence in person at such meeting, except where the
Investment Company Act of 1940, as amended, specifically requires that the vote
of such director be cast in person.
Section 7. Fees and Expenses. The directors shall receive such fees and
expenses for services to the Corporation as may be fixed by the Board of
Directors, subject however, to such limitations as may be provided in the
Articles of Incorporation. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise and receiving compensation therefor.
Section 8. Transactions with Directors. Except as otherwise provided by
law or in the Articles of Incorporation, a director of the Corporation shall not
in the absence of fraud be disqualified from office by dealing or contracting
with the Corporation either as a vendor, purchaser or otherwise, nor in the
absence of fraud shall any transaction or contract of the Corporation be void or
voidable or affected by reason of the fact that any director, or any firm of
which any director is a member, or any corporation of which any
<PAGE>
10
director is an officer, director or stockholder, is in any way interested in
such transaction or contract; provided that at the meeting of the Board of
Directors, at which said contract or transaction is authorized or confirmed, the
existence of an interest of such director, firm or corporation is disclosed or
made known and there shall be present a quorum of the Board of Directors a
majority of which, consisting of directors not so interested, shall approve such
contract or transaction. Nor shall any director be liable to account to the
Corporation for any profit realized by him from or through any such transaction
or contract of the Corporation ratified or approved as aforesaid, by reason of
the fact that he or any firm of which he is a member, or any corporation of
which he is an officer, director, or stockholder, was interested in such
transaction or contract. Directors so interested may be counted when present at
meetings of the Board of Directors for the purpose of determining the existence
of a quorum. Any contract, transaction or act of the Corporation or of the Board
of Directors (whether or not approved or ratified as hereinabove provided) which
shall be ratified by a majority of the votes cast at any annual or special
meeting at which a quorum is present called for such purpose, or approved in
writing by a majority in interest of the stockholders having voting power
without a meeting, shall, except as otherwise provided by law, be valid and as
binding as though ratified by every stockholder of the Corporation.
Section 9. Committees. The Board of Directors may, by resolution adopted
by a majority of the whole Board, designate one or more committees each such
committee to
<PAGE>
11
consist of two or more directors of the Corporation, which, to the extent
permitted by law and provided in said resolution, shall have and may exercise
the powers of the Board over the business and affairs of the Corporation, and
may have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. A majority of the members of any such committee may
determine its action and fix the time and place of its meetings, unless the
Board of Directors shall otherwise provide. The Board of Directors shall have
power at any time to change the membership of, to fill vacancies in, or to
dissolve any such committee.
Section 10. Written Consents. Any action required or permitted to be taken
at any meeting of the Board of Directors or by any committee thereof may be
taken without a meeting, if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes or proceedings of the Board or committee.
Section 11. Waiver of Notice. Whenever under the provisions of these
By-Laws, or of the Articles of Incorporation, or of any of the laws of the State
of Maryland, or other applicable statue, the Board of Directors is authorized to
hold any meeting or take any action after notice or after the lapse of any
prescribed period of time, a waiver thereof, in writing, signed by the person or
persons entitled to such notice or lapse of
<PAGE>
12
time, whether signed before or after the time of meeting or action stated
herein, shall be deemed equivalent thereto. The presence at any meeting of a
person or persons entitled to notice thereof shall be deemed a waiver of such
notice as to such person or persons.
ARTICLE IV
OFFICERS
Section 1. Number and Designation. The Board of Directors shall each year
appoint from among their members a Chairman and a President of the Corporation,
and shall appoint one or more Vice Presidents, a Secretary and a Treasurer and,
from time to time, any other officers and agents as it may deem proper. Any two
of the above mentioned offices, except those of the President and a Vice
President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by law or by these By-Laws to be executed, acknowledged
or verified by any two or more officers.
Section 2. Term of Office. The term of office of all officers shall be one
year or until their respective successors are chosen; but any officer or agent
chosen or appointed by the Board of Directors may be removed, with or without
cause, at any time, by the affirmative vote of a majority of the members of the
Board then in office.
Section 3. Duties. Subject to such limitations as the Board of Directors
may from time to time prescribe, the officers of the Corporation shall each have
such powers
<PAGE>
13
and duties as generally appertain to their respective offices, as well as such
powers and duties as from time to time may be conferred by the Board of
Directors.
ARTICLE V
CERTIFICATE OF STOCK
Section 1. Form and Issuance. Each stockholder of the Corporation, of a
particular Class, shall be entitled upon request, to a certificate or
certificates, in such form as the Board of Directors may from time to time
prescribe, which shall represent and certify the number of shares of stock of
the Corporation of that Class of stock owned by such stockholder. The
certificates for shares of stock of the Corporation shall bear the signature,
either manual or facsimile, of the Chairman of the Board, the President or a
Vice President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, and shall be sealed with the seal of the Corporation or
bear a facsimile of such seal. The validity of any stock certificate shall not
be affected if any officer whose signature appears thereon ceases to be an
officer of the Corporation before such certificate is issued.
Section 2. Transfer of Stock. The shares of stock of the Corporation of
any Class shall be transferable on the books of the Corporation by the holder
thereof in person or by a duly authorized attorney, upon surrender for
cancellation of a certificate or certificates for a like number of shares, with
a duly executed assignment and power of
<PAGE>
14
transfer endorsed thereon or attached thereto, or, if no certificate has been
issued to the holder in respect of shares of stock of the Corporation, upon
receipt of written instructions, signed by such holder, to transfer such shares
from the account maintained in the name of such holder by the Corporation or its
agent. Such proof of the authenticity of the signatures as the Corporation or
its agent may reasonably require shall be provided.
Section 3. Lost, Stolen, Destroyed and Mutilated Certificates. The holder
of any stock of the Corporation of any Class shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of any certificate
therefore, and the Board of Directors may, in its discretion, cause to be issued
to him a new certificate or certificates of stock of the same Class, upon the
surrender of the mutilated certificate or in case of loss, theft or destruction
of the certificate upon satisfactory proof of such loss, theft or destruction of
the certificate upon satisfactory proof of such loss, theft, or destruction; and
the Board of Directors may, in its discretion, require the owner of the lost,
stolen or destroyed certificate, or his legal representatives, to give to the
Corporation and to such registrar or transfer agent as may be authorized or
required to countersign such new certificate or certificates a bond, in such sum
as they may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be made against them or any of them on
account of or in connection with the alleged loss, theft, or destruction of any
such certificate.
<PAGE>
15
Section 4. Record Date. The Board of Directors may fix, in advance, a date
as the record date for the purpose of determining stockholders, of any Class,
entitled to notice of, or to vote at, any meeting of stockholders of any Class,
or stockholders of any Class entitled to receive payment of any dividend or the
allotment of any rights, or in order to make a determination of stockholders of
any Class for any other proper purpose. Such date, in any case, shall be not
more than 90 days, and in case of a meeting of stockholders, not less than 10
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. In lieu of fixing a record date,
the Board of Directors may provide that the stock transfer books shall be closed
for a stated period but not to exceed, in any case, 20 days prior to the date of
any meeting of stockholders or the date for payment of any divided or the
allotment of rights. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting. If no record date for the determination of stockholders
entitled to notice of, or to vote at, a meeting of stockholders shall be at the
close of business on the day on which notice of the meeting is mailed or the day
30 days before the meeting, whichever is the closer date to the meeting, and the
record date for the determination of stockholders entitled to receive payment of
a dividend or an allotment of any rights shall be at the close of business on
the day on which the resolution of the Board of Directors declaring the dividend
or allotment of rights is adopted,
<PAGE>
16
provided that the payment or allotment date shall not be more than 90 days after
the date of the adoption of such resolution.
ARTICLE VI
CORPORATE BOOKS
The books of the Corporation may be kept outside the State of Maryland at
such place or places as the Board of Directors may from time to time determine.
The original or duplicate stock ledger shall be maintained at the office of the
Corporation's transfer agent.
ARTICLE VII
SIGNATURES
Except as otherwise provided in these By-Laws or as the Board of Directors
may generally or in particular cases authorize the execution thereof in some
other manner, all deeds, leases, transfers, contracts, bonds, notes, checks,
drafts and other obligations made, accepted or endorsed by the Corporation and
all endorsements, assignments, transfers, stock powers or other instruments of
transfer of securities owned by or standing in the name of the Corporation shall
be signed or executed by two officers of the Corporation, who shall be the
Chairman, the President or a Vice President and a Vice President, the Secretary
or the Treasurer.
<PAGE>
17
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be established by resolution of
the Board of Directors of the Corporation.
ARTICLE IX
CORPORATE SEAL
The corporate seal of the Corporation shall consist of a flat faced
circular die with the word "Maryland" together with the name of the Corporation,
the year of its organization, and such other appropriate legend as the Board of
Directors may from time to time determine, cut or engraved thereon. In lieu of
the corporate seal, when so authorized by the Board of Directors or a duly
empowered committee thereof, a facsimile thereof may be impressed or affixed or
reproduced.
ARTICLE X
INDEMNIFICATION
As part of the consideration for agreeing to serve and serving as a
director of the Corporation, each director of the Corporation shall be
indemnified by the Corporation against every judgment, penalty, fine,
settlement, and reasonable expense (including
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attorneys' fees) actually incurred by the director in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which the director was, is, or is
threatened to be made a named defendant or respondent (or otherwise becomes a
party) by reason of such director's service in that capacity or status as such,
and the amount of every such judgment, penalty, fine, settlement and reasonable
expense so incurred by the director shall be paid by the Corporation or, if paid
by the director, reimbursed to the director by the Corporation, subject only to
the conditions and limitations imposed by the applicable provisions of Section
2-418 of the Corporations and Associations Article of the Annotated Code of the
State of Maryland and by the provisions of Section 17(h) of the United States
Investment Company Act of 1940 as interpreted and as required to be implemented
by Securities and Exchange Commission Release No. IC-11330 of September 4, 1980.
The foregoing shall not limit the authority of the Corporation to indemnify any
of its officers, employees, or agents to the extent consistent with applicable
law.
ARTICLE XI
AMENDMENTS
All By-Laws of the Corporation shall be subject to alteration, amendment,
or repeal, and new By-Laws not inconsistent with any provision of the Articles
of Incorporation of the Corporation may be made, either by the affirmative vote
of the
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holders of record of a majority of the outstanding stock of the Corporation
entitled to vote in respect thereof, given at an annual meeting or at any
special meeting, provided notice of the proposed alteration, amendment or repeal
of the proposed new By-Laws is included in or accompanies the notice of such
meeting, or by the affirmative vote of a majority of the whole Board of
Directors given at a regular or special meeting of the Board of Directors,
provided that the notice of any such special meeting indicates that the By-Laws
are to be altered, amended, repealed, or that new By-Laws are to be adopted.
ARTICLE XII
COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940
Investment Company Act of 1940. No provision of the By-Laws of the
Corporation shall be given effect to the extent inconsistent with the
requirements of the Investment Company Act of 1940, as amended.
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